U.S. senators posed questions to a panel of witnesses on the topics of stablecoins and a digitized dollar during a virtual hearing on Tuesday.
The hearing of the Senate Committee on Banking, Housing Urban Affairs was the latest to dig into crypto-related topics as well as the broader narrative around the future of money in the United States.
The hearing focused on the role of central bank digital currencies (CBCDs) in developing financial infrastructure and making financial services more accessible to everyone. The panel of witnesses featured former CFTC chair and head of the Digital Dollar Project, Chris Giancarlo, Paxos CEO Charles Cascarilla, and Duke Law School professor Nakita Cuttino.
Addressing concerns regarding the future of money, Senator Sherrod Brown (D-OH) asked the panel of witnesses to explain how a digital currency ecosystem would work effectively without the traditional banking system as a supporting mechanism.
“The banking system in the U.S. should be a public good for everyone,” Senator Brown said.
In general, the senators appeared to be interested in understanding the mechanics of how a digital currency platform would end up replacing the existing banking system. At the same time, there was a degree of skepticism as to whether tech companies would be able to execute the vision they were advocating given Senator Brown’s claims that, historically, big tech companies hadn’t been able to deliver on their more ambitious promises.
On the other hand, the witnesses seemed more focused on voicing the inevitability of the digital currency disruption that, in their view, was bound to happen to the existing banking system.
In his testimony, Giancarlo talked about how the United States should take the lead in the contest for the future of digital currency and privacy rights. Giancarlo also said Congress should focus on financial inclusion, resilience, the development of CBDCs. We can and we must make policy choices as we explore this new form of currency.
“Most of the world’s major commodities are priced in dollars. As they all move to digital programmable formats, it is important the dollar also becomes programmable and digital,” Giancarlo said.
A digital currency horizon?
Senator John Kennedy (R-LA) asked the witnesses what steps Congress needs to take for Americans to have access to a digital currency.
According to Giancarlo, the Federal Reserve has been closely researching possible avenues for a central bank digital currency. He recommended that the Federal Reserve and U.S. Treasury collaborate on building pilot projects, both local and national, using the private sector to test design and other protocols, citing reservations and benefits for veterans as examples of future initiatives.
“We should start small, learn what we learn, drop back, and then take the next step,” Giancarlo said. “Congress needs to make sure public policy is built into this new future of money that our children and grandchildren will use long after we are gone.”
Cascarilla suggested the creation of a regulatory framework as well as enabling access to non-bank payment service providers.
At the hearing, Cascarilla used the example of stablecoins, which he defined as “tokens that represent existing dollars one-to-one on a blockchain,” to explain why the U.S. should implement the digital dollar. His main reasons for implementation were financial inclusion, capital mobilization and cost reductions, and a higher level of transparency.
“We see stablecoins as the next evolution of the dollar,” Cascarilla said.
The witnesses stressed the importance of financial inclusion and equal access to financial services. Cuttino emphasized the need to address the “frictions” that exist within the current payment system, citing unequal access, high costs, geographic restrictions and trust dynamics as some areas that need greater attention. Transaction costs must be low and there must be a way to bridge the gap from cash to digital, Cuttino added.
Senator Mike Rounds (R-SD) asked the witnesses who the winners and losers within the financial industry would be if the Congress were to seed a CBDC pilot project. Giancarlo said the winners of this initiative will be those that can use the technology to lower costs and increase speed, whereas losers will be those that can’t adapt. He said the initiative would have social and national benefit, and that the most adaptive players would survive.
Cuttino said regulation will play a key role in ensuring there are minimal losers, while Cascarilla said those that didn’t embrace the innovation would have a lot to lose in terms of fairness, efficiency and inclusivity.
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